<PAGE>   1
 
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                   FORM 10-Q
 
                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                    FOR THE THREE MONTHS ENDED JUNE 30, 1998
                           COMMISSION FILE NO. 0-8841
                            ------------------------
 
                            THE PIONEER GROUP, INC.
             (exact name of registrant as specified in its charter)
                            ------------------------
 
<TABLE>
<S>                                            <C>
                   DELAWARE                                      13-5657669
       (State or other jurisdiction of                         (IRS Employer
        incorporation or organization)                      Identification No.)
    60 STATE STREET, BOSTON, MASSACHUSETTS                         02109
   (Address of principal executive offices)                      (Zip Code)
</TABLE>
 
                                  617-742-7825
              (Registrant's telephone number, including area code)
 
                                   NO CHANGES
   (Former name, former address and former fiscal year, if changes since last
                                    report)
                            ------------------------
     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes X  No __
                            ------------------------
  As of June 30, 1998, there were 25,434,328 shares of the Registrant's Common
                                     Stock,
               $.10 par value per share, issued and outstanding.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2
 
                        PART I -- FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                 (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNT)
 
<TABLE>
<CAPTION>
                                                               JUNE 30,      DECEMBER 31,
                                                                 1998            1997
                                                               --------      ------------
                                                              (UNAUDITED)
<S>                                                           <C>            <C>
                                         ASSETS
CURRENT ASSETS:
Cash and cash equivalents, at cost which approximates fair
  value.....................................................   $ 24,837        $ 58,802
Restricted cash.............................................      8,474           8,431
Investment in marketable securities, at fair value..........     44,258          38,341
Receivables:
    From securities brokers and dealers for sales of mutual
     fund shares............................................     22,959          11,752
    From Pioneer Family of Mutual Funds.....................     20,508          17,428
    For securities sold.....................................      8,759          11,466
    For gold shipments......................................      2,707           3,451
    Other...................................................     13,543          12,695
Mining inventory............................................     19,251          22,032
Timber inventory............................................      5,566           5,897
Other current assets........................................     17,370          11,957
                                                               --------        --------
        Total current assets................................    188,232         202,252
                                                               --------        --------
NONCURRENT ASSETS:
Mining operations:
    Mining equipment and facilities (net of accumulated
     depreciation of $84,918 in 1998 and $76,060 in 1997)...     91,663          99,164
    Deferred mining development costs (net of accumulated
     amortization of $17,515 in 1998 and $16,177 in 1997)...     16,571          17,521
Cost of acquisition in excess of net assets (net of
  accumulated amortization of $13,491 in 1998 and $12,083 in
  1997).....................................................     18,809          20,216
Long-term venture capital investments, at fair value (cost
  $95,137 in 1998 and $71,754 in 1997)......................    113,728          95,382
Long-term investments, at cost..............................     16,378          15,671
Timber project in development:
    Timber equipment and facilities (net of accumulated
     depreciation of $2,014 in 1998 and $1,260 in 1997).....     18,155          17,898
    Deferred timber development costs (net of accumulated
     amortization of $2,371 in 1998 and $1,611 in 1997).....     20,666          21,264
Building (net of accumulated amortization of $956 in 1998
  and $598 in 1997).........................................     24,746          25,087
Furniture, equipment, and leasehold improvements (net of
  accumulated depreciation and amortization of $12,381 in
  1998 and $8,565 in 1997)..................................     19,376          17,030
Loans to bank customers.....................................      2,317           9,152
Dealer advances (net of accumulated amortization of $23,107
  in 1998 and $17,366 in 1997)..............................     49,725          41,871
Other noncurrent assets.....................................     22,455          21,285
                                                               --------        --------
        Total noncurrent assets.............................    414,589         401,541
                                                               --------        --------
                                                               $602,821        $603,793
                                                               ========        ========
                          LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Payable to funds for shares sold............................   $ 22,937        $ 11,766
Accounts payable............................................     11,498          18,724
Accrued expenses............................................     37,998          29,760
Customer deposits...........................................     19,706          23,584
Brokerage liabilities.......................................     13,767          14,702
Short-term borrowings -- banking activities.................      4,003          12,083
Accrued income taxes........................................      4,900           7,641
Current portion of notes payable............................     14,347          17,411
                                                               --------        --------
        Total current liabilities...........................    129,156         135,671
                                                               --------        --------
NONCURRENT LIABILITIES:
Notes payable, net of current portion.......................    170,412         168,424
Deferred income taxes, net..................................     28,510          29,334
                                                               --------        --------
        Total noncurrent liabilities........................    198,922         197,758
                                                               --------        --------
        Total liabilities...................................    328,078         333,429
                                                               --------        --------
Minority interest...........................................    101,358          86,677
                                                               --------        --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
    Common stock, $.10 par value; authorized 60,000,000
     shares; issued 25,435,803 shares in 1998 and 25,219,567
     shares in 1997.........................................      2,544           2,522
    Paid-in capital.........................................     21,264          15,912
    Retained earnings.......................................    159,694         171,558
    Cumulative translation adjustment.......................     (1,976)         (1,277)
    Treasury stock at cost, 1,475 shares in 1998 and 2,670
     shares in 1997.........................................        (35)            (65)
                                                               --------        --------
                                                                181,491         188,650
    Less -- Deferred cost of restricted common stock
     issued.................................................     (8,106)         (4,963)
                                                               --------        --------
        Total stockholders' equity..........................    173,385         183,687
                                                               --------        --------
                                                               $602,821        $603,793
                                                               ========        ========
</TABLE>
 
  The Company's Annual Report on Form 10-K should be read in conjunction with
                          these financial statements.
                                        2
<PAGE>   3
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED             SIX MONTHS ENDED
                                                 JUNE 30,                      JUNE 30,
                                        --------------------------    --------------------------
                                           1998           1997           1998           1997
                                           ----           ----           ----           ----
<S>                                     <C>            <C>            <C>            <C>
Revenues and sales:
     Investment management fees.......  $    37,110    $    28,422    $    70,741    $    55,517
     Underwriting commissions and
       distribution fees..............        7,844          5,466         14,509         11,234
     Shareholder services fees........        7,898          6,698         15,494         13,362
     Revenues from brokerage
       activities.....................        1,287          6,673          2,068         11,408
     Revenues from banking
       activities.....................          846          2,608          2,150          5,052
     Trustee fees and other income....        7,587          4,903         13,149         10,841
                                        -----------    -----------    -----------    -----------
     Revenues from financial services
       businesses.....................       62,572         54,770        118,111        107,414
     Gold sales.......................       17,259         20,993         40,632         38,460
     Timber sales.....................        2,598          4,267          2,882          4,267
                                        -----------    -----------    -----------    -----------
          Total revenues and sales....       82,429         80,030        161,625        150,141
                                        -----------    -----------    -----------    -----------
Costs and expenses:
     Management, distribution,
       shareholder service and
       administrative expenses........       62,079         43,781        106,708         86,367
     Interest expense -- banking
       activities.....................          323          2,249          1,967          3,609
     Gold mining operating costs and
       expenses.......................       24,568         21,931         48,819         39,158
     Timber operating costs and
       expenses.......................       10,088          4,667         12,074          5,101
                                        -----------    -----------    -----------    -----------
          Total costs and expenses....       97,058         72,628        169,568        134,235
                                        -----------    -----------    -----------    -----------
Other (income) expense:
     Unrealized and realized gains on
       venture capital and marketable
       securities investments, net....       (6,906)        (7,258)       (13,044)       (15,343)
     Interest expense.................        3,881          2,913          7,717          4,527
     Other, net.......................          186            651            336            963
                                        -----------    -----------    -----------    -----------
          Total other (income)
            expense...................       (2,839)        (3,694)        (4,991)        (9,853)
                                        -----------    -----------    -----------    -----------
Income (loss) before provision for
  federal, state and foreign income
  taxes and minority interest.........      (11,790)        11,096         (2,952)        25,759
                                        -----------    -----------    -----------    -----------
Provision for federal, state and
  foreign income taxes................        2,228          5,159          5,653         11,803
                                        -----------    -----------    -----------    -----------
Income (loss) before minority
  interest............................      (14,018)         5,937         (8,605)        13,956
                                        -----------    -----------    -----------    -----------
Minority interest.....................       (1,888)           962         (1,822)         1,672
                                        -----------    -----------    -----------    -----------
Net (loss) income.....................  $   (12,130)   $     4,975    $    (6,783)   $    12,284
                                        ===========    ===========    ===========    ===========
Basic earnings per share..............  $     (0.48)   $      0.20    $     (0.27)   $      0.49
                                        ===========    ===========    ===========    ===========
Diluted earnings per share............  $     (0.48)   $      0.19    $     (0.27)   $      0.48
                                        ===========    ===========    ===========    ===========
Dividends per share...................  $      0.10    $      0.10    $      0.20    $      0.20
                                        ===========    ===========    ===========    ===========
Basic shares outstanding..............   25,042,000     24,829,000     24,967,000     24,828,000
                                        ===========    ===========    ===========    ===========
Diluted shares outstanding............   25,042,000     25,575,000     25,408,000     25,539,000
                                        ===========    ===========    ===========    ===========
</TABLE>
 
  The Company's Annual Report on Form 10-K should be read in conjunction with
                          these financial statements.
 
                                        3
<PAGE>   4
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                 SIX MONTHS ENDED
                                                                     JUNE 30,
                                                              ----------------------
                                                                1998          1997
                                                                ----          ----
<S>                                                           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)........................................  $ (6,783)     $ 12,284
                                                              --------      --------
   Adjustments to reconcile net income to net cash provided
     by operating activities:
     Depreciation and amortization..........................    25,925        18,704
     Unrealized and realized gains on venture capital and
      marketable securities, net............................   (13,044)      (16,309)
     (Equity in earnings of) other investments..............      (209)         (121)
     Restricted stock plan expense..........................     1,443           937
     Deferred income taxes..................................      (824)        2,996
     Minority interest......................................    (1,822)        1,672
     Provision for credit losses............................     5,200           335
   Changes in operating assets and liabilities:
     Investments in marketable securities, net..............    (5,811)       (8,854)
     Receivable from securities brokers and dealers for
      sales of mutual fund shares...........................   (11,207)       (2,289)
     Receivables for securities sold........................     2,707        (9,888)
     Receivables for gold shipments.........................       744            22
     Receivables from Pioneer Family of Mutual Funds and
      Other.................................................    (4,144)       (3,956)
     Mining inventory.......................................     2,781         1,144
     Timber inventory.......................................       331        (2,933)
     Other current assets...................................    (5,976)        3,146
     Other noncurrent assets................................      (814)       (1,359)
     Payable to funds for shares sold.......................    11,171         2,293
     Accrued expenses and accounts payable..................     1,012        11,921
     Brokerage liabilities..................................      (935)        9,579
     Accrued income taxes...................................    (2,667)        1,945
                                                              --------      --------
        Total adjustments...................................     3,861         8,985
                                                              --------      --------
        Net cash (used in) provided by operating
        activities..........................................    (2,922)       21,269
                                                              --------      --------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of mining equipment and facilities..............    (3,687)         (834)
   Deferred mining development costs........................      (388)       (9,408)
   Additions to furniture, equipment and leasehold
     improvements...........................................    (5,818)       (2,615)
   Building.................................................       (17)       (2,849)
   Long-term venture capital investments....................   (26,496)      (21,644)
   Proceeds from sale of long-term venture capital
     investments............................................    16,091           500
   Loans to banks and customers.............................     1,635         3,230
   Deferred timber development costs........................      (244)        4,661
   Timber equipment and facilities..........................    (1,011)       (9,726)
   Other investments........................................    (2,102)       (2,620)
   Proceeds from sales of other investments.................     1,103         1,732
   Cost of acquisition in excess of net assets acquired.....        --           (16)
   Long-term investments....................................      (800)       (3,127)
   Proceeds from sale of long-term investments..............     3,829         9,024
                                                              --------      --------
        Net cash (used in) investing activities.............   (17,905)      (33,692)
CASH FLOWS FROM FINANCING ACTIVITIES:
   Dividends paid...........................................    (5,081)       (5,025)
   Distributions to limited partners of venture capital
     subsidiary.............................................       (68)          (64)
   Amounts raised by venture capital investment
     partnerships...........................................    18,193        18,796
   Exercise of stock options................................       252           229
   Restricted stock plan award..............................        17            10
   Employee stock purchase plan.............................       474           329
   Dealer advances..........................................   (13,595)       (6,695)
   Customer deposits........................................    (3,878)        6,711
   Short term borrowings -- banking activities, net.........    (8,080)       (1,080)
   Revolving credit agreement borrowings, net...............     9,000        10,000
   Borrowings of notes payable..............................        --         2,625
   Repayments of notes payable..............................   (10,076)       (5,742)
   Reclassification of restricted cash......................       (43)         (237)
                                                              --------      --------
        Net cash (used in) provided by financing
        activities..........................................   (12,885)       19,857
                                                              --------      --------
Effect of foreign currency exchange rate changes on cash and
  cash equivalents..........................................      (253)         (116)
                                                              --------      --------
Net (decrease) increase in cash and cash equivalents........   (33,965)        7,318
Cash and cash equivalents at beginning of period............    58,802        30,813
                                                              --------      --------
Cash and cash equivalents at end of period..................  $ 24,837      $ 38,131
                                                              ========      ========
</TABLE>
 
  The Company's Annual Report on Form 10-K should be read in conjunction with
                          these financial statements.
 
                                        4
<PAGE>   5
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                                 JUNE 30, 1998
 
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     The accounting and reporting policies of the Company conform to generally
accepted accounting principles. The Company has not changed any of its principal
accounting policies from those stated in the Annual Report on Form 10-K for the
year ended December 31, 1997. The footnotes to the financial statements reported
in the 1997 Annual Report on Form 10-K are incorporated herein by reference,
except to the extent that any such footnote is updated by the following:
 
     Certain reclassifications have been made to the accompanying 1997
consolidated financial statements to conform with the 1998 presentation.
 
     In April 1998, the American Institute of Certified Public Accountants (the
"AICPA") issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities". The new standard requires that entities expense costs of start-up
activities as those costs are incurred. The term start-up includes
pre-operating, pre-opening and organization activities. The Company has
capitalized certain pre-operating costs in connection with its natural resource
operations, and has certain capitalized organizational costs associated with its
emerging markets financial services operations.
 
     The statement must be adopted by the first quarter of 1999. At adoption,
the Company must record a cumulative effect of a change in accounting principle
and write-off all remaining unamortized start-up costs. At this time, the
Company has estimated unamortized capitalized start-up costs of approximately
$20 million, related principally to its timber operations.
 
     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or a liability measured at its fair value.
The Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. The
Company has not yet quantified the impacts of adopting Statement 133 on our
financial statements and has not determined the timing of or method of our
adoption of Statement 133. Statement 133 is effective for fiscal years beginning
after June 15, 1999.
 
     Income taxes paid were $7,556,000 and $6,915,000 for the six months ended
June 30, 1998, and June 30, 1997, respectively. In addition, interest paid was
$6,980,000 for the six months ended June 30, 1998, and $6,424,000 for the six
months ended June 30, 1997. Included in these interest paid amounts $1,353,000,
for the six months ended June 30, 1997 that was capitalized related to TGL's
mining Phase III expansion operations.
 
                                        5
<PAGE>   6
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 1998
 
NOTE 2 -- EARNINGS PER SHARE
 
     The Company adopted SFAS 128, "Earnings Per Share," during 1997. SFAS 128
requires the replacement of earnings per share ("EPS") with basic EPS. Basic EPS
is computed by dividing reported earnings available to stockholders by weighted
average shares outstanding not including contingently issuable shares. No
dilution for potentially dilutive securities is included. Fully diluted EPS,
called diluted EPS under SFAS 128, is still required. Amounts for 1997 have been
restated to conform to this presentation. The computations for basic earnings
per share and diluted earnings per share are as follows:
 
<TABLE>
<CAPTION>
                                                   NET                  EARNINGS/
                                                 INCOME/                  (LOSS)
                                                 (LOSS)      SHARES     PER SHARE
                                                ---------    -------    ----------
                                                 (DOLLARS AND SHARES IN THOUSANDS
                                                    EXCEPT PER SHARE AMOUNTS)
<S>                                             <C>          <C>        <C>
FOR THE THREE MONTHS ENDED 6/30/98
Basic earnings per share calculation..........  $(12,130)    25,042       $(0.48)
                                                                          ======
Options.......................................        --         --
Restricted stock..............................        --         --
                                                --------     ------
Diluted earnings per share calculation........  $(12,130)    25,042       $(0.48)
                                                ========     ======       ======
FOR THE THREE MONTHS ENDED 6/30/97
Basic earnings per share calculation..........  $  4,975     24,829       $ 0.20
                                                                          ======
Options.......................................        --        707
Restricted stock..............................        --         39
                                                --------     ------
Diluted earnings per share calculation........  $  4,975     25,575       $ 0.19
                                                ========     ======       ======
</TABLE>
 
<TABLE>
<CAPTION>
                                                   NET                  EARNINGS/
                                                 INCOME/                  (LOSS)
                                                 (LOSS)      SHARES     PER SHARE
                                                ---------    -------    ----------
                                                 (DOLLARS AND SHARES IN THOUSANDS
                                                    EXCEPT PER SHARE AMOUNTS)
<S>                                             <C>          <C>        <C>
FOR THE SIX MONTHS ENDED 6/30/98
Basic earnings per share calculation..........  $ (6,783)    24,967       $(0.27)
                                                                          ======
Options.......................................        --        373
Restricted stock..............................        --         68
                                                --------     ------
Diluted earnings per share calculation........  $ (6,783)    25,408       $(0.27)
                                                ========     ======       ======
FOR THE SIX MONTHS ENDED 6/30/97
Basic earnings per share calculation..........  $ 12,284     24,828       $ 0.49
                                                                          ======
Options.......................................        --        671
Restricted stock..............................        --         40
                                                --------     ------       ------
Diluted earnings per share calculation........  $ 12,284     25,539       $ 0.48
                                                ========     ======       ======
</TABLE>
 
                                        6
<PAGE>   7
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 1998
 
NOTE 3 -- COMPREHENSIVE INCOME
 
     The Company adopted SFAS 130, "Reporting Comprehensive Income" in the first
quarter of 1998. SFAS 130 establishes standards for the reporting of
comprehensive income and its components. Comprehensive income, as defined,
includes all changes in equity during a period from non-owner sources. The
Company's foreign currency translation adjustments, which are excluded from net
income, are included in comprehensive income. The following table reports
comprehensive income for the six months ended June 30, 1998 and 1997.
 
<TABLE>
<CAPTION>
                                                              SIX MONTHS ENDED
                                                                  JUNE 30,
                                                           ----------------------
                                                             1998         1997
                                                           ---------    ---------
                                                           (DOLLARS IN THOUSANDS)
<S>                                                        <C>          <C>
Net income/(loss)........................................   $(6,783)     $12,284
                                                            -------      -------
Other comprehensive (expense), net of tax:
  Foreign currency translation adjustments...............      (699)        (269)
                                                            -------      -------
Other comprehensive (expense)............................      (699)        (269)
                                                            -------      -------
Comprehensive income/(loss)..............................   $(7,482)     $12,015
                                                            =======      =======
</TABLE>
 
NOTE 4 -- MINING INVENTORY
 
     Mining inventories consist of the following:
 
<TABLE>
<CAPTION>
                                                        JUNE 30,    DECEMBER 31,
                                                          1998          1997
                                                        --------    ------------
                                                         (DOLLARS IN THOUSANDS)
<S>                                                     <C>         <C>
Gold-in-process.......................................  $ 2,328       $ 1,998
Materials and supplies................................   16,923        20,034
                                                        -------       -------
                                                        $19,251       $22,032
                                                        =======       =======
</TABLE>
 
NOTE 5 -- NET CAPITAL
 
     As a broker-dealer, PFD is subject to the Securities and Exchange
Commission's ("SEC") regulations and operating guidelines which, among other
things, requires PFD to maintain a minimum amount of net capital of $250,000.
PFD's net capital, as computed under Rule 15c3-1, was $1,139,464 at June 30,
1998.
 
     PFD is exempt from the reserve requirements of Rule 15c3-3, since its U.S.
broker-dealer transactions are limited to the purchase, sale and redemption of
redeemable securities of registered investment companies. All customer funds are
promptly transmitted and all securities received in connection with activities
as a broker-dealer are promptly delivered. PFD does not otherwise hold funds or
securities for, or owe money or securities to, customers.
 
                                        7
<PAGE>   8
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 1998
 
NOTE 6 -- NOTES PAYABLE
 
     Notes payable of the Company consist of the following:
 
<TABLE>
<CAPTION>
                                                              JUNE 30,    DECEMBER 31,
                                                                1998          1997
                                                              --------    ------------
                                                               (DOLLARS IN THOUSANDS)
<S>                                                           <C>         <C>
Revolving Credit Agreement..................................  $105,000      $ 96,000
Senior note payable to a commercial lender, principal
  payable on August 15, 2004, interest payable at 7.95%.....    20,000        20,000
Preferred shares financing related to the Russian investment
  operations................................................        --         2,000
Small Business Administration ("SBA") financing, notes
  payable to a bank, Interest payable semi-annually at rates
  ranging from 6.12% to 9.8%, principal due in 1998 through
  2003......................................................     3,750         4,950
Note payable to a bank, interest payable quarterly at the
  three month LIBOR rate plus 6%, principal due in eight
  quarterly installments through January, 1999, secured by
  lease rental payments and proceeds from insurance
  policies..................................................     1,241         1,897
Notes payable to a bank, guaranteed by the Company,
  principal payable in semi-annual installments, of $214,000
  through November 30, 1999, no interest payable, secured by
  equipment.................................................       644           858
Note payable to a bank, guaranteed by the Swedish Exports
  Credits Guarantee Board, principal payable in semi-annual
  installments of $1,415,000 through January 31, 2002,
  interest payable at 6.42%, secured by equipment...........    11,317        12,732
Note payable to a supplier, principal payable in quarterly
  installments of $336,000 through April 15, 2001, interest
  payable at 7.85%, secured by equipment....................     4,027         4,699
Note payable to a supplier, principal and interest payable
  in quarterly installments of $102,000 through April 15,
  2001, interest payable at 7.85%, secured by equipment.....     1,083         1,239
Note payable to a supplier, principal payable in quarterly
  installments of $285,000 through May 30, 2001, interest
  payable at 8.00%, secured by equipment....................     3,418         3,988
Note payable to a supplier, principal payable in quarterly
  installments of $338,000 through December 15, 2001,
  interest payable at 8.25%, secured by equipment...........     4,561         5,237
Note payable to a supplier, principal payable in semi-annual
  installments of $637,000 through April 15, 2003, interest
  payable at 8.30%, secured by equipment....................     5,481         5,795
Note payable to a bank, guaranteed by OPIC, principal
  payable in twelve equal semi-annual installments of
  $1,583,000 through September 15, 2003, interest payable at
  6.37%.....................................................    17,417        19,000
Project financing, guaranteed by OPIC, payable in
  semi-annual installments of $620,000 through December 15,
  2003, interest payable at 7.20%...........................     6,820         7,440
                                                              --------      --------
                                                               184,759       185,835
Less: Current portion.......................................   (14,347)      (17,411)
                                                              --------      --------
                                                              $170,412      $168,424
                                                              ========      ========
</TABLE>
 
     In June 1996, the Company entered into an agreement with a syndicate of
commercial banks for a senior credit facility (the "Credit Facility"). Under the
Credit Facility, the Company may borrow up to $60 million (the "B-share
Revolver") to finance dealer advances relating to sales of back-end load shares
of the Company's domestic mutual funds. The Credit Facility also provides that
the Company may borrow up to $80 million for general corporate purposes (the
"Corporate Revolver"). At June 30, 1998, the Company had borrowed $57.5 million
under the Corporate Revolver and $47.5 million under the B-share Revolver.
 
                                        8
<PAGE>   9
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 1998
 
     Under the Credit Facility, the Company is required to maintain interest
rate protection agreements covering at least 60% of the outstanding indebtedness
under the B-share Revolver. As of June 30, 1998, the Company entered into six
five-year interest rate swap agreements with a member of the Company's banking
syndicate which has effectively fixed the interest rate on notional amounts
totaling $100 million. Under these agreements, the Company will pay the bank a
weighted average fixed rate of 6.76%, plus the applicable margin (ranging from
0.75% to 1.75%), on the notional principal. The bank will pay the Company
interest on the notional principal at the current variable rate stated under the
B-share Revolver. The Company has incurred approximately $600,000 and $562,000
of interest expense on these swap agreements at June 30, 1998 and June 30, 1997,
respectively. The fair value of these agreements was $2,965,500, at June 30,
1998, which represents the estimated amount the Company would be obligated to
pay to terminate the agreements.
 
     For the six months ended June 30, 1998, and June 30, 1997 the weighted
average interest rate on the borrowings under the Credit Facility and Note
Agreement was 7.93% and 8.0%, respectively.
 
     Maturities of notes payable at June 30, 1998, for each of the next five
years and thereafter are as follows (dollars in thousands):
 
<TABLE>
<S>                                                 <C>
  7/1/98-6/30/99................................    $ 14,347
  7/1/99-6/30/00................................      12,921
  7/1/00-6/30/01................................      12,658
  7/1/01-6/30/02................................      66,226
  7/1/02-6/30/03................................      28,898
  Thereafter....................................      49,709
                                                    --------
                                                    $184,759
                                                    ========
</TABLE>
 
NOTE  7 -- FINANCIAL INFORMATION BY BUSINESS SEGMENT
 
     The Company adopted SFAS 131, "Disclosures about Segments of an Enterprise
and Related Information" in 1997. SFAS 131 requires companies to present segment
information using the management approach. The management approach is based on
the way that management organizes the segments within a Company for making
operating decisions and assessing performance. The Company's operating segments
are organized around services and products provided, as well as geographic
regions. The intersegment transactions are for management services and the
secondment of employees. These transactions are generally priced on a cost or
cost plus basis.
 
                                        9
<PAGE>   10
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
NOTE 7 -- FINANCIAL INFORMATION BY BUSINESS SEGMENT
 
     Total revenues and income (loss) by business segment and geographic region,
excluding intersegment transactions (dollars in thousands):
<TABLE>
<CAPTION>
                               DOMESTIC FINANCIAL
                                    SERVICES                             EMERGING MARKETS FINANCIAL SERVICES
                              --------------------   ---------------------------------------------------------------------------
                               DOMESTIC     U.S.      RUSSIAN     POLISH                 CENT. & EAST.
                              INVESTMENT   VENTURE   FINANCIAL   FINANCIAL    CZECH         EUROPE          FAR
                              MANAGEMENT   CAPITAL   SERVICES    SERVICES    REPUBLIC   VENTURE CAPITAL     EAST     REAL ESTATE
                              ----------   -------   ---------   ---------   --------   ---------------     ----     -----------
<S>                           <C>          <C>       <C>         <C>         <C>        <C>               <C>        <C>
SIX MONTHS ENDED
JUNE 30, 1998:
  Gross revenues and
    sales...................  $ 105,024    $   894   $  8,241     $ 5,897     $  765        $ 3,978        $  --       $   404
                              =========    =======   ========     =======     ======        =======        =====       =======
  Intersegment
    eliminations............  $  (3,373)   $    --   $     --     $    --     $   --        $(3,719)       $  --       $    --
                              =========    =======   ========     =======     ======        =======        =====       =======
  Net revenues and sales....  $ 101,651    $   894   $  8,241     $ 5,897     $  765        $   259        $  --       $   404
                              =========    =======   ========     =======     ======        =======        =====       =======
  Income (loss) before
    income taxes and
    minority interest.......  $  29,945    $ 8,664   $(11,613)    $  (692)    $ (482)       $(2,100)       $(442)      $(1,742)
                              =========    =======   ========     =======     ======        =======        =====       =======
  Taxes.....................  $  10,859    $ 2,602   $ (1,130)    $  (183)    $  (70)       $(1,282)       $(172)      $  (583)
                              =========    =======   ========     =======     ======        =======        =====       =======
  Minority interest.........  $      --    $ 2,332   $ (2,819)    $    (3)    $   --        $  (640)       $  --       $    --
                              =========    =======   ========     =======     ======        =======        =====       =======
  Net income (loss).........  $  19,086    $ 3,730   $ (7,664)    $  (506)    $ (412)       $  (178)       $(270)      $(1,159)
                              =========    =======   ========     =======     ======        =======        =====       =======
  Depreciation and
    amortization............  $  11,061    $   111   $  1,133     $   303     $  137        $    71        $  --       $    31
                              =========    =======   ========     =======     ======        =======        =====       =======
  Interest expense..........  $   1,740    $   191   $  2,209     $    11     $   --        $    --        $  --       $    --
                              =========    =======   ========     =======     ======        =======        =====       =======
  Capital expenditures......  $   4,619    $     8   $  1,158     $    --     $   22        $    --        $  --       $    --
                              =========    =======   ========     =======     ======        =======        =====       =======
  Gross identifiable assets
    at June 30, 1998........  $ 310,260    $80,314   $107,002     $13,941     $1,304        $44,227        $  --       $ 5,421
                              =========    =======   ========     =======     ======        =======        =====       =======
  Intersegment
    eliminations............  $(150,475)   $    (7)  $ (2,435)    $    --     $  (86)       $(1,504)       $  --       $  (272)
                              =========    =======   ========     =======     ======        =======        =====       =======
  Net identifiable assets at
    June 30, 1998...........  $ 159,785    $80,307   $104,567     $13,941     $1,218        $42,723        $  --       $ 5,149
                              =========    =======   ========     =======     ======        =======        =====       =======
 
<CAPTION>
 
                                              NATURAL RESOURCES
                              - SUBTOTAL -   -------------------
                               WORLDWIDE
                               FINANCIAL       GOLD     RUSSIAN
                                SERVICES      MINING     TIMBER     OTHER       TOTAL
                              ------------   --------   --------   --------   ---------
<S>                           <C>            <C>        <C>        <C>        <C>
SIX MONTHS ENDED
JUNE 30, 1998:
  Gross revenues and
    sales...................   $ 125,203     $ 40,632   $  2,882   $  8,266   $ 176,983
                               =========     ========   ========   ========   =========
  Intersegment
    eliminations............   $  (7,092)    $     --   $     --   $ (8,266)  $ (15,358)
                               =========     ========   ========   ========   =========
  Net revenues and sales....   $ 118,111     $ 40,632   $  2,882   $     --   $ 161,625
                               =========     ========   ========   ========   =========
  Income (loss) before
    income taxes and
    minority interest.......   $  21,538     $(10,764)  $(11,596)  $ (2,130)  $  (2,952)
                               =========     ========   ========   ========   =========
  Taxes.....................   $  10,041     $ (3,199)  $   (354)  $   (835)  $   5,653
                               =========     ========   ========   ========   =========
  Minority interest.........   $  (1,130)    $   (692)  $     --   $     --   $  (1,822)
                               =========     ========   ========   ========   =========
  Net income (loss).........   $  12,627     $ (6,873)  $(11,242)  $ (1,295)  $  (6,783)
                               =========     ========   ========   ========   =========
  Depreciation and
    amortization............   $  12,847     $ 12,712   $  1,596   $    213   $  27,368
                               =========     ========   ========   ========   =========
  Interest expense..........   $   4,151     $  1,942   $  2,074   $  1,517   $   9,684
                               =========     ========   ========   ========   =========
  Capital expenditures......   $   5,807     $  3,687   $  1,011   $     28   $  10,533
                               =========     ========   ========   ========   =========
  Gross identifiable assets
    at June 30, 1998........   $ 562,469     $138,344   $ 48,509   $ 35,912   $ 785,234
                               =========     ========   ========   ========   =========
  Intersegment
    eliminations............   $(154,779)    $     --   $     --   $(27,634)  $(182,413)
                               =========     ========   ========   ========   =========
  Net identifiable assets at
    June 30, 1998...........   $ 407,690     $138,344   $ 48,509   $  8,278   $ 602,821
                               =========     ========   ========   ========   =========
</TABLE>
 
                                       10
<PAGE>   11
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONCLUDED)
<TABLE>
<CAPTION>
                                DOMESTIC FINANCIAL
                                     SERVICES                      EMERGING MARKETS FINANCIAL SERVICES
                               --------------------   -------------------------------------------------------------
                                DOMESTIC     U.S.      RUSSIAN     POLISH                 CENT. & EAST.
                               INVESTMENT   VENTURE   FINANCIAL   FINANCIAL    CZECH         EUROPE          FAR
                               MANAGEMENT   CAPITAL   SERVICES    SERVICES    REPUBLIC   VENTURE CAPITAL     EAST     REAL ESTATE
                               ----------   -------   ---------   ---------   --------   ---------------     ----     -----------
<S>                            <C>          <C>       <C>         <C>         <C>        <C>               <C>        <C>
SIX MONTHS ENDED
JUNE 30, 1997:
  Gross revenues and sales...  $  81,352    $   762   $ 20,506     $ 8,101     $  435        $   182                    $   579
                               =========    =======   ========     =======     ======        =======        =====       =======
  Intersegment
    eliminations.............  $  (4,419)   $    --   $    (84)    $    --     $   --        $    --                    $    --
                               =========    =======   ========     =======     ======        =======        =====       =======
  Net revenues and sales.....  $  76,933    $   762   $ 20,422     $ 8,101     $  435        $   182                    $   579
                               =========    =======   ========     =======     ======        =======        =====       =======
  Income (loss) before income
    taxes and minority
    interest.................  $  22,476    $ 6,760   $  3,089     $ 1,097     $ (854)       $  (629)                   $  (334)
                               =========    =======   ========     =======     ======        =======        =====       =======
  Taxes......................  $   8,988    $ 2,204   $  1,336     $   751     $  (86)       $   369                    $  (132)
                               =========    =======   ========     =======     ======        =======        =====       =======
  Minority interest..........  $      --    $ 1,377   $    919     $   (72)    $   --        $  (622)                   $    --
                               =========    =======   ========     =======     ======        =======        =====       =======
  Net income (loss)..........  $  13,488    $ 3,179   $    834     $   418     $ (768)       $  (376)                   $  (202)
                               =========    =======   ========     =======     ======        =======        =====       =======
  Depreciation and
    amortization.............  $   8,348    $    68   $    388     $    --     $   --        $    --                    $   299
                               =========    =======   ========     =======     ======        =======        =====       =======
  Interest expense...........  $   1,234    $   200   $  3,709     $    --     $   --        $    --                    $    --
                               =========    =======   ========     =======     ======        =======        =====       =======
  Capital expenditures.......  $   1,996    $     5   $  3,030     $   297     $   --        $    22                    $    80
                               =========    =======   ========     =======     ======        =======        =====       =======
  Gross identifiable assets
    at June 30, 1997.........  $ 239,702    $69,448   $118,798     $11,715     $1,060        $29,436                    $ 6,396
                               =========    =======   ========     =======     ======        =======        =====       =======
  Intersegment
    eliminations.............  $(120,118)   $    (7)  $ (3,605)    $    --     $   --        $    --                    $  (126)
                               =========    =======   ========     =======     ======        =======        =====       =======
  Net identifiable assets at
    June 30, 1997............  $ 119,584    $69,441   $115,193     $11,715     $1,060        $29,436                    $ 6,270
                               =========    =======   ========     =======     ======        =======        =====       =======
 
<CAPTION>
 
                                              NATURAL RESOURCES
                               - SUBTOTAL -   ------------------
                                WORLDWIDE
                                FINANCIAL       GOLD     RUSSIAN
                                 SERVICES      MINING    TIMBER     OTHER       TOTAL
                               ------------   --------   -------   --------   ---------
<S>                            <C>            <C>        <C>       <C>        <C>
SIX MONTHS ENDED
JUNE 30, 1997:
  Gross revenues and sales...   $ 111,917     $ 38,460   $ 4,267   $  3,145   $ 157,789
                                =========     ========   =======   ========   =========
  Intersegment
    eliminations.............   $  (4,503)    $     --   $    --   $ (3,145)  $  (7,648)
                                =========     ========   =======   ========   =========
  Net revenues and sales.....   $ 107,414     $ 38,460   $ 4,267   $     --   $ 150,141
                                =========     ========   =======   ========   =========
  Income (loss) before income
    taxes and minority
    interest.................   $  31,605     $ (2,317)  $(1,889)  $ (1,640)  $  25,759
                                =========     ========   =======   ========   =========
  Taxes......................   $  13,430     $   (615)  $  (133)  $   (879)  $  11,803
                                =========     ========   =======   ========   =========
  Minority interest..........   $   1,602     $     70   $    --   $     --   $   1,672
                                =========     ========   =======   ========   =========
  Net income (loss)..........   $  16,573     $ (1,772)  $(1,756)  $   (761)  $  12,284
                                =========     ========   =======   ========   =========
  Depreciation and
    amortization.............   $   9,103     $  9,996   $    63   $    479   $  19,641
                                =========     ========   =======   ========   =========
  Interest expense...........   $   5,143     $    748   $ 1,161   $  1,084   $   8,136
                                =========     ========   =======   ========   =========
  Capital expenditures.......   $   5,430     $    834   $ 9,726   $     34   $  16,024
                                =========     ========   =======   ========   =========
  Gross identifiable assets
    at June 30, 1997.........   $ 476,555     $148,945   $50,281   $ 25,483   $ 701,264
                                =========     ========   =======   ========   =========
  Intersegment
    eliminations.............   $(123,856)    $     --   $    --   $(14,049)  $(137,905)
                                =========     ========   =======   ========   =========
  Net identifiable assets at
    June 30, 1997............   $ 352,699     $148,945   $50,281   $ 11,434   $ 563,359
                                =========     ========   =======   ========   =========
</TABLE>
 
                                       11
<PAGE>   12
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
                                    OVERVIEW
 
     The consolidated financial statements of The Pioneer Group, Inc. (the
"Company") include the Company's worldwide financial services and natural
resource businesses. Management's Discussion and Analysis of Financial Condition
and Results of Operations is presented in three sections: Results of Operations,
Liquidity and Capital Resources -- General, and Future Operating Results.
 
                             RESULTS OF OPERATIONS
 
CONSOLIDATED OPERATIONS
 
     The Company reported a second quarter loss of $12.1 million, or $0.48 per
share, compared to net income of $5.0 million or $0.19 per share in the second
quarter of 1997. Gross revenues for the second quarter of 1998 were $82.4
million compared to gross revenues of $80.0 million in the second quarter of
1997. For the six months ended June 30, 1998, the Company reported a loss of
$6.8 million, or $0.27 per share, compared to net income of $12.3 million, or
$0.48 per share, in the first six months of 1997. Gross revenues for the first
six months of 1998 were $161.6 million compared to $150.1 million during the
comparable period in 1997.
 
     The table below details earnings per share by business segment for the
second quarter and six months ended June 30, 1998 versus the second quarter and
six months ended June 30, 1997.
 
<TABLE>
<CAPTION>
                                     3 MONTHS   3 MONTHS                   6 MONTHS   6 MONTHS
                                      ENDED      ENDED                      ENDED      ENDED
                                     JUNE 30,   JUNE 30,    DIFFERENCE:    JUNE 30,   JUNE 30,    DIFFERENCE:
         BUSINESS SEGMENT              1998       1997     INCR./(DECR.)     1998       1997     INCR./(DECR.)
         ----------------            --------   --------   -------------   --------   --------   -------------
<S>                                  <C>        <C>        <C>             <C>        <C>        <C>
Domestic investment management.....     38c        28c          10c           75c        53c          22c
U.S. venture capital...............      7c         4c           3c           15c        12c           3c
                                       ----       ----         ----          ----       ----         ----
     Total domestic financial
       services....................     45c        32c          13c           90c        65c          25c
                                       ----       ----         ----          ----       ----         ----
Russian financial services.........    (27c)        3c         (30c)         (30c)        3c         (33c)
Polish financial services..........     (3c)        --          (3c)          (2c)        2c          (4c)
Czech Republic mutual fund.........     (1c)       (1c)          --           (2c)       (3c)          1c
Central and Eastern European
  venture capital..................     (1c)       (2c)          1c           (1c)       (2c)          1c
Far East financial services........     (1c)        --          (1c)          (1c)        --          (1c)
Real estate........................     (2c)       (1c)         (1c)          (4c)       (1c)         (3c)
                                       ----       ----         ----          ----       ----         ----
     Total emerging markets
       financial services..........    (35c)       (1c)        (34c)         (40c)       (1c)        (39c)
                                       ----       ----         ----          ----       ----         ----
     Worldwide financial
       services....................     10c        31c         (21c)          50c        64c         (14c)
                                       ----       ----         ----          ----       ----         ----
Gold mining........................    (22c)       (6c)        (16c)         (27c)       (7c)        (20c)
Russian timber.....................    (33c)       (5c)        (28c)         (44c)       (7c)        (37c)
Other natural resources............      --        (1c)          1c           (1c)       (1c)          --
                                       ----       ----         ----          ----       ----         ----
     Natural resources.............    (55c)      (12c)        (43c)         (72c)      (15c)        (57c)
                                       ----       ----         ----          ----       ----         ----
Interest expense and other.........     (3c)        --          (3c)          (5c)       (1c)         (4c)
                                       ----       ----         ----          ----       ----         ----
          Total....................    (48c)       19c         (67c)         (27c)       48c         (75c)
                                       ====       ====         ====          ====       ====         ====
</TABLE>
 
                     WORLDWIDE FINANCIAL SERVICES BUSINESS
 
RESULTS OF OPERATIONS
 
     The Company's worldwide financial services business has three principal
sources of revenues: fees from managing the 34 U.S. registered investment
companies (mutual funds) in the Pioneer Family of Mutual Funds and institutional
accounts, fees from underwriting and distributing mutual fund shares, and fees
from acting as mutual fund shareholder servicing agent. The Company has similar
revenues from its international investment operations in Poland, Russia,
Ireland, and the Czech Republic, and from its joint venture in India.
 
                                       12
<PAGE>   13
 
The Company also has revenues from its Russian and Polish brokerage operations
and revenues and earnings from its U.S. venture capital operations.
 
     In the second quarter of 1998, the Company's worldwide financial services
business had revenues of $62.6 million, $7.8 million, or 14%, higher than
revenues of $54.8 million in the second quarter of 1997. Increased revenues from
the domestic investment management business more than offset reduced revenues
from the Company's Russian brokerage and banking businesses.
 
     Sales of domestic mutual funds, including reinvested dividends, of $1.1
billion in the second quarter continued at a record pace. Sales in the quarter
exceeded last year's second quarter by 70%. Net sales were $0.5 billion in the
second quarter of 1998 compared to $0.2 billion in the second quarter of 1997.
Sales of domestic mutual funds, including reinvested dividends, of $2.1 billion
in the first six months of 1998 exceeded the prior year's comparable period by
58%. Net sales in the first half of 1998 were $0.9 billion compared to $0.3
billion in the first six months of 1997. Worldwide assets under management were
$23.5 billion at June 30, 1998, compared to $21.0 billion at December 31, 1997.
 
     The table below details revenues and net income in the second quarter and
six months ended June 30, 1998 and 1997 for the segments of the Company's
worldwide financial services business.
 
                            REVENUES AND NET INCOME
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                   REVENUES         NET INCOME          REVENUES          NET INCOME
                                                --------------    --------------    ----------------    ---------------
                                                 THREE MONTHS      THREE MONTHS        SIX MONTHS         SIX MONTHS
                                                    ENDED             ENDED              ENDED               ENDED
                                                   JUNE 30,          JUNE 30,           JUNE 30,           JUNE 30,
                                                --------------    --------------    ----------------    ---------------
               BUSINESS SEGMENT                 1998     1997     1998     1997      1998      1997      1998     1997
               ----------------                 ----     ----     ----     ----      ----      ----      ----     ----
<S>                                             <C>      <C>      <C>      <C>      <C>       <C>       <C>       <C>
Domestic investment management................  $53.8    $39.3    $ 9.6    $ 7.2    $101.6    $ 76.9    $ 19.1    $13.5
U.S. venture capital..........................    0.5      0.4      1.7      1.2       0.9       0.8       3.7      3.2
                                                -----    -----    -----    -----    ------    ------    ------    -----
Emerging markets financial services:
    Russia....................................    4.6     10.7     (6.8)     0.8       8.2      20.4      (7.7)     0.8
    Poland....................................    2.8      3.7     (0.7)      --       5.9       8.1      (0.5)     0.4
    Czech Republic............................    0.5      0.2     (0.1)    (0.4)      0.8       0.4      (0.4)    (0.8)
Central and Eastern European venture
  capital.....................................    0.2      0.2     (0.2)    (0.5)      0.3       0.2      (0.2)    (0.3)
    Far East financial services...............     --       --     (0.2)      --        --        --      (0.2)      --
    Real estate services......................    0.2      0.3     (0.6)    (0.2)      0.4       0.6      (1.1)    (0.2)
                                                -----    -----    -----    -----    ------    ------    ------    -----
        Total emerging markets financial
          services............................    8.3     15.1     (8.6)    (0.3)     15.6      29.7     (10.1)    (0.1)
                                                -----    -----    -----    -----    ------    ------    ------    -----
        Total worldwide financial services....  $62.6    $54.8    $ 2.7    $ 8.1    $118.1    $107.4    $ 12.7    $16.6
                                                =====    =====    =====    =====    ======    ======    ======    =====
</TABLE>
 
  Domestic Investment Management
 
     Revenues from the Company's domestic investment management business of
$53.8 million in the second quarter of 1998 increased by $14.5 million, or 37%.
Revenues of $101.6 million in the first six months of 1998 increased by $24.7
million, or 32%. Net income increased by 33% in the second quarter, increasing
by $2.4 million, or $0.10 per share, to $9.6 million, or $0.38 per share. Net
income increased by 41% in the first six months, increasing by $5.6 million, or
$0.22 per share, to $19.1 million, or $0.75 per share.
 
     Management fee revenues of $34.6 million and $65.7 million for the three
and six months ended June 30, 1998, increased by $9 million and $15.6 million,
respectively, over the comparable 1997 periods. These increases principally
reflected higher assets under management resulting from year to date gains in
the U.S. stock market, and an increase in net sales of mutual fund shares.
 
     Costs and expenses increased by $11.0 million in the second quarter of 1998
to $38.3 million. Approximately 35% of the increase in expenses, or $4.0
million, resulted from higher payroll costs, part of which related to the
Company's efforts to strengthen its investment management and sales and
marketing staff. An additional 25% of the increase in expenses, or $2.4 million,
resulted from higher mutual fund distribution costs, including the printing and
mailing of sales literature, paying commissions earned by the sales force,
mutual fund advertising and public relations. Ten percent of the increase in
expenses, or
 
                                       13
<PAGE>   14
 
$1.1 million, resulted from higher expenses associated with the amortization of
dealer advances resulting from sales of back-end load mutual fund shares. These
amortization expenses were more than offset by the increase in distribution fees
of $1.8 million. Costs and expenses increased by $16.5 million in the first six
months of 1998 to $70.9 million. Year to date increases in expense categories
generally reflect the trends identified for the second quarter.
 
  U.S. Venture Capital
 
     Net income from the Company's U.S. venture capital operations for the
second quarter was $1.7 million, or $0.07 per share, compared to net income of
$1.2 million, or $0.04 per share, for the second quarter of 1997. Second quarter
earnings included a significant gain from the sale of one of the venture capital
portfolio companies. Net income for the first six months of 1998 was $3.7
million, or $0.15 per share, compared to net income of $3.2 million, or $0.12
per share, for the first six months of 1997.
 
  Russian Financial Services
 
     The Company's Russian financial services operations reported a loss of $6.8
million, or $0.27 per share, for the second quarter compared to net income of
$0.8 million, or $0.03 per share, in the second quarter of 1997. Losses included
$5.9 million, or $0.23 per share, from the Company's majority owned Russian
bank. The Company's Russian financial services operations reported a loss of
$7.7 million, or $0.30 per share, for the first six months compared to net
income of $0.8 million, or $0.03 per share, in the first six months of 1997. The
Company has determined that most of the losses suffered by the bank resulted
from unauthorized financial transactions engaged in by the bank's management. As
a result of this determination, the bank's Board of Directors is exploring
alternatives for the disposition of the bank. The Company does not believe that
the bank's operations and ultimate disposition will have any further negative
impact on the Company's financial results. The Company is pursuing an insurance
claim under a fidelity bond policy but is not yet in a position to estimate the
likelihood of any potential recovery. Also in Russia, revenues from the
Company's brokerage business continued to decline as a result of the
significantly depressed Russian stock market.
 
TAXES
 
     The Company's effective tax rate for the first six months of 1998 for the
worldwide financial services businesses was 46% compared to 42% for the first
six months of 1997. The loss from the Company's Russian banking operations was
not tax benefited.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     IRS regulations require that, in order to serve as trustee, the Company
must maintain a net worth of at least 2% of the assets of Individual Retirement
Accounts and other qualified retirement plan accounts at yearend. At June 30,
1998, the Company served as trustee for $6.9 billion of qualified plan assets
and the ratio of net worth to qualified assets was 2.5%. The Company's
stockholders' equity of $173.4 million at June 30, 1998, would permit it to
serve as trustee for up to $8.7 billion of qualified plan assets.
 
     Dealer Advances related to Class B shares (which are amortized to
operations over the life of the contingent deferred sales charge period) were
$49.7 million at June 30, 1998. The Company intends to continue to finance this
program, in part, through the credit facilities described in the section
entitled "Liquidity and Capital Resources -- General."
 
CERTAIN ACCOUNTING POLICIES
 
     The Company believes that there is significant unrealized value in the
assets included in the Voucher Fund's securities portfolio. In accordance with
Generally Accepted Accounting Principles (Statement of Financial Accounting
Standards No. 115 -- Accounting for Certain Investments in Debt and Equity
Securities), the securities in the Voucher Fund reflect the cost rather than
"fair value" until such time as the breadth and scope of the Russian securities
markets develop to certain quantifiable levels.
 
                                       14
<PAGE>   15
 
     The Voucher Fund's assets consist of cash and cash equivalents, securities
(both liquid and illiquid), real estate holdings and other miscellaneous assets.
The cost of the securities portion of the portfolio on the Company's balance
sheet at June 30, 1998, was approximately $17 million. At July 16, 1998, the
value of these securities (based on market quotations if available) was
approximately $51 million, which represents an increase of approximately $34
million. The Company's pre-tax interest in this increase, at 51%, would be
approximately $17 million. The cost of the cash and cash equivalents, real
estate and miscellaneous assets of the Voucher Fund on the Company's balance
sheet at June 30, 1998, was approximately $1 million, $24 million and $4
million, respectively.
 
     Currently, the Company recognizes realized gains or losses on its income
statement only when Voucher Fund securities are sold. Once the Russian
securities market develops to the requisite level, unrealized gains and losses
(such as the $34 million described above) would be reflected in long-term
investments in the Company's balance sheet with a corresponding after-tax
increase or decrease in stockholders' equity for the Company's 51% interest with
the remainder recorded as minority interest. The Company will continue to
recognize realized gains and losses in income upon the sale of such securities.
 
     The Russian securities markets are significantly smaller and less liquid
than the securities markets in the United States. Liquidity and volumes
fluctuate significantly and are strongly influenced by global market trends. In
1997, the number of issues actively traded on the Russian Trading System
increased substantially until the end of October when, as a result of the Asian
financial crisis, meaningful trading was confined to four to five blue chip
stocks. The market in 1998 has lost significant value and has been characterized
by excessive volatility. The relative lack of liquidity may result in the
Voucher Fund selling a portfolio security at a price that does not reflect its
underlying value. Accordingly, fair values are not necessarily indicative of the
amount that could be realized in a short period of time on large volumes of
transactions. In addition, the securities investments in the Voucher Fund may be
negatively affected by adverse economic, political and social developments in
Russia including changes in government and government policies, taxation,
currency instability, interest rates and inflation levels and developments in
law and regulations affecting securities issuers and their shareholders and
securities markets. As a result of the foregoing, there can be no assurance that
the Company will be able to realize the values described above.
 
                          NATURAL RESOURCE BUSINESSES
 
                              GOLD MINING BUSINESS
 
     The results of the gold mining business are substantially attributable to
the operations of Teberebie Goldfields Limited ("TGL"), the principal operating
subsidiary of the Company's wholly owned subsidiary, Pioneer Goldfields Limited
("PGL"). The Company's reported losses give effect to the 10% minority interest
in TGL held by the Government of Ghana. Gold mining results are also affected by
PGL's exploration activity in Africa and by the exploration activities in the
Russian Far East of Closed Joint-Stock Company, "Tas-Yurjah Mining Company"
("Tas-Yurjah"), the Company's majority owned (52.5%) Russian subsidiary.
Exploration costs are charged to operations as incurred.
 
RESULTS OF OPERATIONS
 
     For the three and six months ended June 30, 1998, the gold mining segment
lost $5.7 million, or 22 cents per share, and $6.9 million, or 27 cents per
share, respectively. The segment reported losses of $1.6 million and $1.8
million for the corresponding periods in 1997. The losses were tax benefited at
rates of 28% and 34% for the respective three and six months ended June 30, 1998
compared with 26% and 23% for the respective three and six months ended June 30,
1997.
 
                                       15
<PAGE>   16
 
     The table below details the earnings per share for the gold mining segment
for the three and six months ended June 30, 1998 versus June 30, 1997.
 
<TABLE>
<CAPTION>
                                  THREE MONTHS                          SIX MONTHS
                                     ENDED                                ENDED
                                    JUNE 30,                             JUNE 30,
                                ----------------    1998 VS 1997     ----------------    1998 VS 1997
                                 1998      1997     INCR./(DECR.)     1998      1997     INCR./(DECR.)
                                 ----      ----     -------------     ----      ----     -------------
<S>                             <C>       <C>       <C>              <C>       <C>       <C>
African Operations(TGL).......  $(0.20)   $(0.05)      $(0.15)       $(0.22)   $(0.04)      $(0.18)
African Exploration...........   (0.01)     0.00        (0.01)        (0.03)    (0.01)       (0.02)
                                ------    ------       ------        ------    ------       ------
  PGL Total...................   (0.21)    (0.05)       (0.16)        (0.25)    (0.05)       (0.20)
                                ------    ------       ------        ------    ------       ------
Russian Exploration...........   (0.01)    (0.01)        0.00         (0.02)    (0.02)        0.00
                                ------    ------       ------        ------    ------       ------
          Total...............  $(0.22)   $(0.06)      $(0.16)       $(0.27)   $(0.07)      $(0.20)
                                ======    ======       ======        ======    ======       ======
</TABLE>
 
     TGL earns all of its revenues in U.S. dollars and the majority of its
transactions and costs are denominated in U.S. dollars or are based in U.S.
dollars. Consequently, Ghanaian inflation has not had a material effect on TGL's
operations. Ghanaian cedi denominated costs such as fuel, wages, power and local
purchases are affected, in dollar terms, when currency devaluation does not
offset changes in the relative inflation rates in the U.S. and Ghana. Since
Ghana has experienced significant inflation over the last three years, the cedi
has devalued continuously against the dollar.
 
  Gold Sales
 
     Revenues decreased by $3.7 million to $17.3 million in the second quarter
of 1998 compared with 1997 as gold shipments decreased by 5,500 ounces, or 9%,
to 56,000 ounces and the average realized price of gold decreased by $33 to $308
per ounce. Revenues increased by $2.2 million to $40.6 million during the first
half of 1998 compared with 1997 as the 16% increase in gold sales to 129,500
ounces was offset partially by a 9% decrease in the average realized gold price
to $314 per ounce. During the second quarter and first half of 1998, the average
realized price of gold included proceeds of $10 per ounce and $17 per ounce,
respectively, from the sale of floor program options.
 
  Gold Production and Costs
 
     The table below compares TGL's production and shipment results, cash costs
and total costs per ounce for the three and six months ended June 30, 1998, with
the comparable periods in 1997.
 
<TABLE>
<CAPTION>
                                  THREE MONTHS                          SIX MONTHS
                                     ENDED                                ENDED
                                    JUNE 30,                             JUNE 30,
                               ------------------    INCREASE/     --------------------   INCREASE/
                                1998       1997      (DECREASE)      1998        1997     (DECREASE)
                                ----       ----      ----------    --------    --------   ----------
<S>                            <C>        <C>        <C>           <C>         <C>        <C>
Production (ounces)..........   56,000     54,700       1,300       129,500     111,500     18,000
Shipments (ounces)...........   56,000     61,500      (5,500)      129,500     111,500     18,000
Cash costs:
  Production costs...........  $   274    $   219     $    55      $    229    $    205    $    24
  Royalties..................        9         10          (1)            9          10         (1)
  General and
     administrative..........       37         39          (2)           30          37         (7)
                               -------    -------     -------      --------    --------    -------
  Cash costs per ounce.......      320        268          52           268         252         16
                               -------    -------     -------      --------    --------    -------
Non-cash costs:
  Depreciation and
     amortization............      106         83          23            96          87          9
  Other......................        3          5          (2)            4           5         (1)
                               -------    -------     -------      --------    --------    -------
  Cost of production per
     ounce...................      429        356          73           368         344         24
                               -------    -------     -------      --------    --------    -------
Interest and other costs.....       28         16          12            22          13          9
                               -------    -------     -------      --------    --------    -------
          Total costs per
            ounce............  $   457    $   372     $    85      $    390    $    357    $    33
                               =======    =======     =======      ========    ========    =======
</TABLE>
 
     During the three and six months ended June 30, 1998, TGL experienced
several negative factors, which caused production to fall short of forecasted
levels. The most significant was the drought-related hydroelectric power
shortage, which created severe crushing downtime. This problem has been
mitigated by recently
 
                                       16
<PAGE>   17
 
installed additional generating capacity that allows the mine to continue most
production during planned outages and additional power provided from Cote
d'Ivoire. Crusher downtime also occurred because of: (i) vendor equipment
downtime related to electrical control and instrumentation at the gyratory
stockpile reclaim feeders, (ii) increased wear part consumption due to the
processing of harder rock, (iii) early wear liner replacement for the gyratory
stockpile feeders and (iv) delayed parts shipments. With respect to the
equipment issues, equipment vendor representatives have visited the mine site
and are planning the necessary corrective action. TGL continues to emphasize
maintenance employee training and process improvements to minimize the level of
scheduled and unscheduled crushing equipment downtime. See "Recent Developments"
below.
 
     Production Costs.  Production costs represent costs attributable to mining
ore and waste and processing the ore through crushing and processing facilities.
TGL's costs of production are affected by ore grade, gold recovery rates, the
waste to ore ("stripping") ratio, the age and availability of equipment, weather
conditions, availability and cost of labor, haul distances, foreign exchange
fluctuations and the inherent lag in gold production from heap leaching
operations. Production costs for the three and six months ended June 30, 1998,
increased by $55 per ounce and $24 per ounce, respectively, compared with the
corresponding periods in 1997 principally because of an increase in the
stripping ratio and higher processing costs. TGL continues to conduct waste
stripping at a level necessary to maintain adequate ore deliveries and prudent
mine development. Processing costs increased because ore processing facilities
operated substantially below the Phase III design capacity, resulting in higher
unit operating costs. The shortfall in ore processing was related to mandatory
electric power shedding, disruptions and limitations imposed on routine
operations effected by the use of back-up power, and delays in rationalizing
operating and maintenance processes associated with the Phase III facilities due
to priority work on the power situation.
 
     A comparison of key production statistics for the three and six months
ended June 30, 1998, and June 30, 1997, is shown in the table below:
 
<TABLE>
<CAPTION>
                                                              THREE MONTHS         SIX MONTHS
                                                                 ENDED               ENDED
                                                                JUNE 30,            JUNE 30,
                                                            ----------------    ----------------
                                                             1998      1997      1998      1997
                                                             ----      ----      ----      ----
<S>                                                         <C>       <C>       <C>       <C>
Tonnes mined (in thousands):
Waste.....................................................   7,589     5,092    15,013    11,274
Run-of-mine...............................................      --        18        --       610
                                                            ------    ------    ------    ------
Tonnes Waste and Run-of-Mine..............................   7,589     5,110    15,013    11,884
Ore.......................................................   2,116     2,258     4,196     4,237
                                                            ------    ------    ------    ------
          Total Tonnes Mined..............................   9,705     7,368    19,209    16,121
                                                            ======    ======    ======    ======
Stripping Ratio ((waste + run-of-mine)/ore)...............  3.59:1    2.26:1    3.58:1    2.80:1
Ore Processed.............................................   2,020     2,069     4,182     3,840
Process Grade (grams/tonne)...............................    1.29      1.15      1.33      1.21
</TABLE>
 
     Royalties.  During the six months ended June 30, 1998 and June 30, 1997,
the royalty rate payable by TGL remained at 3% of operating revenues, the
minimum permitted by law, principally because of a sustained level of capital
expenditures, and associated capital allowances, since the inception of the
project.
 
     General and Administrative Costs.  General and administrative costs consist
principally of administrative salaries and related benefits, travel expenses,
insurance, utilities, legal costs, employee meals, rents and vehicle
expenditures. These costs decreased by approximately $2 per ounce compared with
the three months ended June 30, 1997 because of lower benefits costs associated
with TGL's 1998 collective bargaining agreement with the Ghana Mineworkers'
Union. Since these costs are primarily fixed and unrelated to production levels,
the decrease of approximately $5 per ounce compared with the six months ended
June 30, 1997 was attributable to the increase in gold production.
 
     Depreciation and Amortization.  Depreciation and amortization for the three
and six months ended June 30, 1998 increased by $23 per ounce and $9 per ounce,
respectively, compared with the three and six months ended June 30, 1997,
principally because of crusher, mining equipment and pads and ponds additions
associated with the Phase III mine expansion.
 
                                       17
<PAGE>   18
 
     Other.  Other costs represent a provision for future reclamation costs and
supplies inventory obsolescence and costs related to exploration activities
conducted by TGL at the Teberebie concession and elsewhere in Ghana. No
additional obsolescence reserves were required during the three and six months
ended June 30, 1998 and, as a result, obsolescence reserves decreased by $2 per
ounce and $1 per ounce, respectively, compared with the three and six months
ended June 30, 1997.
 
     Interest and Other Costs.  Interest and other costs during the three and
six months ended June 30, 1998 increased by $12 per ounce and $9 per ounce,
respectively, compared with the corresponding 1997 periods primarily because of
interest expense associated with the Phase III expansion, which was capitalized
during the first four months of 1997. In addition, five dollars of the increase
in the second quarter of 1998 relates to increases in floor program premiums and
a reduction in foreign exchange gains, offset partially by floor program option
sales which were unrelated to shipments.
 
     Income Taxes.  The statutory tax rate for mining companies in Ghana in 1998
and 1997 was 35%.
 
EXPLORATION ACTIVITIES
 
     Since the end of 1993, PGL has engaged in exploration activities in the
Republic of Ghana and other African countries. These activities are currently
conducted by TGL in Ghana and by PGL or its local subsidiary in countries
outside of Ghana. In the first half of 1998, PGL incurred exploration costs of
approximately $1.0 million.
 
     In 1994, the Company entered into a joint venture, Tas-Yurjah, to explore
potential gold mining properties in the Khabarovsk Territory of Russia. In the
first half of 1998, the Company expended approximately $0.5 million for
Tas-Yurjah exploration work.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  Cash Flow
 
     The cash balances of the gold mining segment decreased from $7.6 million to
$4.0 million during the first half of 1998. Sixty percent, or $2.4 million, of
TGL's cash balances remain in escrow and are unavailable to pay short-term
obligations. Cash generated from operating activities aggregated $3.7 million
while capital expenditures and loan principal payments were $4.1 million and
$5.6 million, respectively. Major capital expenditures during the year included
$2.7 million for processing equipment and pad and pond development, including
$1.8 million for leach pad expansion, $0.8 million for mining equipment and $0.2
million for vehicles. During the first half of 1998, the Company provided $1.3
million to fund the exploration activities of PGL and Tas-Yurjah.
 
  Third-Party Debt
 
     At the end of the first half of 1998, third-party debt aggregated $47.9
million, including $17.4 million guaranteed by the Overseas Private Investment
Corporation ("OPIC") for which the Company is subject to limited recourse
(described below under "Financing Facilities") and $0.6 million from other
sources which is guaranteed by the Company. Scheduled third-party debt service
for the remainder of 1998 is expected to aggregate $7.9 million.
 
  Financing Facilities
 
     In connection with the Phase III mine expansion, TGL secured third-party
financing of approximately $54.2 million, of which $53.6 million was drawn down,
and $41.8 million remained outstanding at June 30, 1998. In December 1997, TGL
secured $5.8 million of additional financing for replacement mining equipment.
 
     Skandinaviska Enskilda Banken/Swedish Export Credits Board.  In March 1996,
TGL executed a loan agreement with Enskilda, a division of Skandinaviska
Enskilda Banken, pursuant to which Enskilda agreed to provide a direct loan of
SEK 94.5 million (approximately $14.2 million) bearing interest at a fixed rate
of 6.42% to finance the gyratory crusher and related equipment procured from
Svedala Crushing and Screening
 
                                       18
<PAGE>   19
 
AB. The loan is guaranteed by the Swedish Export Credits Board. As of June 30,
1998, $11.3 million of this facility remained outstanding.
 
     In connection with the purchase of TGL's Phase I crusher plant, a loan of
$0.6 million, secured in 1989, remained outstanding at June 30, 1998, bearing an
interest rate of 0%, which is guaranteed by the Company.
 
     Caterpillar Financial Services Corporation.  In April 1996, TGL obtained
credit approval from Caterpillar Financial Services Corporation ("Caterpillar"),
pursuant to which Caterpillar agreed to provide a revolving credit facility of
up to $21 million, subsequently increased to $23 million in September 1997, to
finance the purchase of replacement mining equipment. TGL has initiated
discussions with Caterpillar to renew the revolving credit facility which was
subject to renewal in May 1998. In the event that the credit facility is not
renewed, 85% of the outstanding loan balances (approximately $19 million) will
continue to be repaid over a five-year term, while the remainder will be repaid
over a three-year term. At June 30, 1998, Caterpillar had issued disbursements,
at TGL's request, for $26.3 million of such facility, bearing interest at fixed
rates ranging from 7.85% to 8.30%, of which $7.8 million had been repaid.
 
     Overseas Private Investment Corporation.  In October 1996, TGL and the
Company executed definitive loan agreements with OPIC pursuant to which OPIC
agreed to provide financing of up to $19 million, of which $17.4 million
remained outstanding at June 30, 1998, with respect to the Phase III expansion.
Disbursements under this facility occurred in November 1996. The underlying note
is payable in eleven remaining equal semiannual installments from September 15,
1998 through September 15, 2003, and bears a fixed interest rate of 6.37%. In
addition, a spread of 2.65% on outstanding borrowings is payable to OPIC. As a
condition to the financing, the Company was required to execute a Project
Completion Agreement pursuant to which the Company would advance funds, as
necessary (to the extent of dividends received during the construction stage of
the Phase III expansion), to permit TGL to fulfill all of its financial
obligations, including cost overruns related to project development. Under the
Project Completion Agreement, the Company is also obligated to advance the
lesser of $9 million and any deficit with respect to a defined cash flow ratio
in the event of a payment default. The foregoing obligations of the Company
continue to exist until such time as TGL satisfies a production test and certain
financial and project development benchmarks. In addition, the Company has
agreed that if the percentage of gold proceeds that TGL must convert to Ghanaian
Cedis increases above a certain threshold and, as a result of regulatory and
other restrictions, TGL is unable to convert such proceeds to satisfy its debt
service obligations to OPIC, it shall cover up to $10 million of such
obligations. The Company has secured insurance for 90% of this obligation.
 
     Subordinated Debt.  In addition to third-party financing facilities, the
Company provided $4.2 million in subordinated debt financing to TGL during 1997
to satisfy its short-term liquidity needs. The Company expects to provide an
additional $7.5 million in subordinated debt financing in 1998, including $1.0
million advanced in the first six months.
 
  Risk Management
 
     In April 1998, TGL purchased additional floor program put options at an
exercise price of $305 per ounce to cover estimated production from May through
September 1998.
 
RECENT DEVELOPMENTS
 
     Ghana is currently experiencing a severe electric power shortage resulting
from widespread drought in the region from which Ghana generates its
hydroelectric power. In response to the shortage, the Ghanaian government's
electric utility, Electric Corporation of Ghana Ltd. ("ECG"), had imposed
significant distribution restrictions on electricity that have negatively
impacted TGL's operations. ECG was providing 60% of TGL's electric power needs.
TGL installed additional standby diesel generators at the beginning of May to
mitigate the situation. Two additional standby rental generators were
commissioned in July 1998. Ghana recently began importing power from the Cote
d'Ivoire, which is sufficient enough to mitigate its own shortfalls, however,
TGL is still experiencing unplanned shortages from the ECG. The Company believes
that the situation will not improve in the long term until one or more of the
proposed power generation projects become operational.
 
                                       19
<PAGE>   20
 
     As a result of the second quarter production shortfalls, TGL has revised
its 1998 gold production forecast to approximately 280,000 ounces.
 
                                TIMBER BUSINESS
 
     The Company's Russian venture, Closed Joint-Stock Company "Forest-Starma",
in which Pioneer Forest, Inc. (a wholly owned subsidiary of the Company) has a
97% direct interest is pursuing the development of timber production in the
Khabarovsk Territory of Russia. Forest-Starma has developed a modern logging
camp, including a harbor facility, from which it exports timber for markets in
the Pacific Rim, primarily Japan.
 
     For 1998, Forest-Starma is projected to produce approximately 240,000 cubic
meters of timber, a decrease of 95,000 cubic meters from the previously reported
target of 335,000 cubic meters. The decrease is attributable to lower than
expected operating productivity, equipment availability and a fire disruption
occurring on the Siziman Bay leasehold in the second quarter of 1998, requiring
the redeployment of logging crews and equipment to contain the fire. The fire
was contained in the third quarter of 1998 after damage to approximately 17,000
hectares and 11,500 cubic meters of decked logs. An insurance claim has been
filed to defray the cost of fire fighting and to cover damaged inventory and
lost income. The amount of the insurance recovery, however, cannot be determined
at this time.
 
RESULTS OF OPERATIONS
 
     For the three and six months ended June 30, 1998, Forest-Starma had
revenues of $2.6 million and $2.9 million, respectively. During the
corresponding periods in 1997, Forest-Starma had revenues of $4.3 million. For
the three and six months ended June 30, 1998, Forest-Starma lost $8.5 million,
or 33 cents per share, and $11.2 million, or 44 cents per share, respectively.
Forest Starma lost $1.2 million, or 5 cents per share, and $1.8 million, or 7
cents per share, during the corresponding periods in 1997. Production during the
three and six months ended June 30, 1998, was 45,000 and 97,000 cubic meters,
respectively, compared to 63,000 and 112,000 cubic meters, respectively, during
the corresponding periods in 1997. Shipments during the 1998 periods were 73,000
and 82,000 cubic meters, respectively, compared to 63,000 cubic meters in 1997.
 
     During the first half of 1998, timber prices in key Pacific Rim markets
continued to decline steadily resulting in lower average realized prices for
shipments ($35 per cubic meter versus $67 per cubic meter) and a significant
reduction in the valuation of inventory. At December 31, 1997 and June 30, 1998,
timber inventory aggregated 73,000 cubic meters and 78,000 cubic meters,
respectively. During the three and six months ended June 30, 1998, lower than
expected production levels resulted in an increase in the cost per cubic meter
produced. Since inventories are recorded on a lower of cost or market basis,
inventories were written-down during the three and six months ended June 30,
1998 by approximately $2.8 million and $3.8 million, respectively. There were no
required inventory adjustments during the first six months of 1997.
 
     Cost of Goods Sold.  Forest-Starma values its inventory at the lower of
cost or market using the full absorption accounting method. Accordingly, costs
of goods sold of $7.1 million and $8.7 million in the second quarter and six
months ended June 30, 1998, respectively, included all operating costs such as
payroll, fuel, spare parts, site related general and administrative expenses,
amortization, depreciation and other taxes. The cost of goods sold also includes
the inventory valuation reductions discussed previously. During the second
quarter of 1998, the average production cost, including the cost of fire
fighting, was $100 per cubic meter. The decline in realized timber prices
experienced in 1997 continued through the first and second quarters of 1998 and,
as a result, finished goods inventory was adjusted to market value at $26 per
cubic meter. Cost of goods sold in the corresponding 1997 periods was $3.7
million.
 
     Depreciation and Amortization.  Depreciation and amortization expense,
which is included in cost of goods sold, was $0.6 million and $1.2 million,
respectively, for the second quarter and six months ended June 30, 1998. The
logging equipment, roads and jetty represent approximately 90% of fixed assets
and are recorded at cost and depreciated on a units-of-production basis, which
anticipates recovery over five, twenty and thirty years respectively.
Development costs are amortized on a units-of-production basis, which
 
                                       20
<PAGE>   21
 
anticipates recovery over ten years. All other fixed assets are recorded at cost
and are depreciated on a straight-line basis over periods ranging from five to
twenty five years.
 
     Other expenses.  Other expenses of $4.0 million in the second quarter and
$5.4 million in the six months ended June 30, 1998, include interest expense,
management fees, effects of foreign exchange, political risk insurance premiums,
and goodwill amortization. Other expenses in the corresponding 1997 periods were
$1.4 million and $2.0 million, respectively.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  Project Financing
 
     Capital required by this venture is now projected at approximately $66.8
million through the end of 1998. At June 30, 1998, project financing aggregated
$62.3 million including $44.5 million in subordinated debt and accrued interest
provided by the Company, $11 million in unpaid liabilities to the Company for
ongoing operating expenses and $6.8 million in outstanding third party
financing. The Company expects to convert approximately $15 million of
subordinated debt to equity in 1998 and has forgiven $1.9 million of
subordinated debt and interest. Forest-Starma completed a $9.3 million project
financing with OPIC in July 1996, of which $6.8 million remained outstanding at
June 30, 1998. The underlying note is payable in eleven remaining semiannual
installments through December 15, 2003, and bears interest at a fixed rate of
7.20%. In addition, a spread of 2.75% on outstanding borrowings is payable to
OPIC prior to project completion, increasing to 5.125% after project completion
when the Company ceases to be an obligor in the transaction. As a condition to
the OPIC financing, the Company was required to execute a Project Completion
Agreement pursuant to which the Company would advance funds to Forest-Starma, as
necessary, to permit Forest-Starma to fulfill all of its financial obligations,
including cost overruns related to project development, until such time as
Forest-Starma satisfies a production test and certain financial and project
development benchmarks. Remaining scheduled third-party debt service for 1998 is
expected to aggregate $1 million.
 
  Other Ventures
 
     Since inception, the Company provided funding and services to the Amgun and
Udinskoye timber projects in the Russian Far East aggregating $4.3 million,
including $0.5 million in 1998.
 
                   LIQUIDITY AND CAPITAL RESOURCES -- GENERAL
 
     The Company's liquid assets consisting of cash and marketable securities
(exclusive of gold mining and timber operations) decreased by $24.8 million in
the first six months of 1998 to $71.1 million principally from decreased cash
and investments held by the Russian investment operations.
 
     The Company entered into an agreement in June 1996 with a syndicate of
commercial banks for a senior credit facility (the "Credit Facility"). Under the
Credit Facility, the Company may borrow up to $60 million (the "B-share
Revolver") to finance dealer advances relating to sales of back-end load shares
of the Company's domestic mutual funds. The B-share Revolver is subject to
annual renewal by the Company and the commercial banks. In the event the B-share
Revolver is not renewed at maturity, it will automatically convert into a
five-year term loan. As of the date of this Quarterly Report, the Company's
banking syndicate has not renewed the B-share Revolver. Advances under the
B-share Revolver bear interest, at the Company's option, at (a) the higher of
the bank's base lending rate or the federal funds rate plus 0.50% or (b) LIBOR
plus 1.25%. The Credit Facility also provides that the Company may borrow up to
$80 million for general corporate purposes (the "Corporate Revolver"). The
Corporate Revolver is payable in full on June 11, 2001. Advances under the
Corporate Revolver bear interest, at the Company's option, at (a) the higher of
the bank's base lending rate or the federal funds rate plus 0.50% or (b) LIBOR
plus the applicable margin, tied to the Company's financial performance, of
either 0.75%, 1.25%, 1.50% or 1.75%. The Credit Facility provides that the
Company must pay additional interest at the rate of 0.375% per annum of the
unused portion of the facility and an annual arrangement fee of $35,000. At June
30, 1998, the Company had borrowed $47.5 million under the B-share Revolver and
$57.5 million under the Corporate Revolver. Until such time as the banking
syndicate renews the B-share Revolver, the Company will, if necessary, finance
dealer advances utilizing the
 
                                       21
<PAGE>   22
 
Corporate Revolver. Under the Credit Facility, the Company is required to
maintain interest rate protection agreements covering at least 60% of the
outstanding indebtedness under the B-share Revolver. See Part I -- Financial
Information, Item 1, Financial Statements, Note 6 of Notes to Consolidated
Financial Statements.
 
     The Credit Facility contains restrictions that limit, among other things,
encumbrances on the assets of the Company's domestic mutual fund subsidiaries
and certain mergers and sales of assets. Additionally, the Credit Facility
requires that the Company meet certain financial covenants including covenants
that require the Company to maintain certain minimum ratios with respect to debt
to cash flow and interest payments to cash flow and a minimum tangible net
worth, all as defined in the Credit Facility. As of June 30, 1998, the Company
was in compliance with all applicable covenants.
 
     In August 1997, the Company entered into an agreement (the "Note
Agreement") with a commercial lender pursuant to which the Company issued to the
lender Senior Notes in the aggregate principal amount of $20 million. The Senior
Notes, which bear interest at the rate of 7.95% per annum, have a maturity of
seven years. The restrictions and financial covenants under the Note Agreement
are substantially similar to the restrictions and financial covenants in the
Credit Facility.
 
                            ------------------------
 
     THE COMPANY BELIEVES THAT IT IS IN SOUND FINANCIAL CONDITION, THAT IT HAS
SUFFICIENT LIQUIDITY FROM OPERATIONS AND FINANCING FACILITIES TO COVER
SHORT-TERM COMMITMENTS AND CONTINGENCIES AND THAT IT HAS ADEQUATE CAPITAL
RESOURCES TO PROVIDE FOR LONG-TERM COMMITMENTS.
 
                        RECENT ACCOUNTING PRONOUNCEMENTS
 
     In April 1998, the American Institute of Certified Public Accountants (the
"AICPA") issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities". The new standard requires that entities expense costs of start-up
activities as those costs are incurred. The term start-up includes
pre-operating, pre-opening and organization activities. The Company has
capitalized certain pre-operating costs in connection with its natural resource
operations, and has capitalized certain organizational costs associated with its
emerging markets financial services operations. The statement must be adopted by
the first quarter of 1999. At adoption, the Company must record a cumulative
effect of a change in accounting principle and write-off all remaining
unamortized start-up costs. At this time, the Company has estimated unamortized
capitalized start-up costs of approximately $20 million related principally to
its timber operations. The Company considers the charge associated with the
adoption of this statement as material to the Company's results of operations.
 
                            FUTURE OPERATING RESULTS
 
     Certain of the information contained in this Quarterly Report on Form 10-Q,
including information with respect to the Company's plans and strategies for its
worldwide financial services and natural resource businesses, consists of
forward-looking statements. For this purpose, any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "projects," "estimates" and similar expressions are intended
to identify forward-looking statements. Important factors that could cause
actual results to differ materially from those indicated by such forward-looking
statements include, but are not limited to, the following:
 
     The Company is aware of the threat posed by the Year 2000 transition and
has for some time been actively engaged in addressing the potential impacts to
its businesses. The Company has completed the awareness, assessment and planning
phases of the project. As a result of this process, the Company believes that
the scope of the repair phase is minimal principally because the Company
possesses relatively little internally developed computer code. Therefore, the
Company is currently focusing most of its resources on testing and implementing
compliant systems throughout the organization. Despite the steps taken to
minimize risk, the Company is aware that Year 2000-related problems could still
expose the Company to disruptions. In this regard, the Company believes that its
largest risk factor is its reliance upon vendors to successfully
 
                                       22
<PAGE>   23
 
complete their own Year 2000 programs on time. As a result, the Company is
monitoring closely its vendors and has prepared detailed contingency plans
throughout all of its operating companies to minimize the effects of any
external failure to achieve Year 2000 compliance. The Company believes that it
is on target to achieve compliance of all internal systems, is monitoring
carefully its vendors' compliance programs, and has prepared contingency plans.
The Company does not expect its costs to address the Year 2000 transition to be
material to its financial condition or operations. Nor does it expect any
material disruptions to its operations. However, the Company can provide no
assurance that its efforts to address the Year 2000 transition will be
successful, or that related cost estimates will not change as the effort
continues.
 
     The Company derives a significant portion of its revenues from investment
management fees, underwriting and distribution fees and shareholder services
fees. Success in the investment management and mutual fund share distribution
businesses is substantially dependent on investment performance. Good
performance stimulates sales of shares and tends to keep redemptions low. Sales
of shares result in increased assets under management, which, in turn, generate
higher management fees and distribution fees. Good performance also attracts
institutional accounts. Conversely, relatively poor performance results in
decreased sales and increased redemptions and the loss of institutional
accounts, with corresponding decreases in revenues to the Company. Investment
performance may also be affected by economic or market conditions which are
beyond the control of the Company. In addition, four of the Company's mutual
funds (including the three largest funds) have management fees which are
adjusted based upon the funds' performance relative to the performance of an
established index. As a result, management fee revenues may be subject to
unexpected volatility.
 
     The mutual fund industry is intensely competitive. Many organizations in
this industry are attempting to sell and service the same clients and customers,
not only with mutual fund investments but with other financial services
products. Some of the Company's competitors have more products and product lines
and substantially greater assets under management and financial resources.
 
     The Company offers a multi-class share structure on its domestic mutual
funds. Under such structure, the Company pays to dealers a commission on the
sale of back-end load shares but the investor does not pay any sales charge
unless it redeems before the expiration of the minimum holding period, which
ranges from three to six years in the case of Class B Shares and which is one
year in the case of Class C Shares. The Company is reimbursed for such
commissions from payments by the funds under distribution plans and from
contingent deferred sales charges paid by investors who redeem before the
expiration of the applicable holding period. The Company's cash flow and results
of operations may be adversely affected by vigorous sales of back-end load
shares because its recovery of the cost of commissions paid up front to dealers
is spread over a period of years. During this period, the Company bears the
costs of financing and the risk of market decline.
 
     The businesses of the Company and its domestic financial services
subsidiaries are primarily dependent upon their associations with the Pioneer
Family of Mutual Funds with which they have contractual relationships. In the
event any of the management contracts, underwriting contracts or service
agreements was canceled or not renewed pursuant to the terms thereof, the
Company may be substantially adversely affected.
 
     The Securities and Exchange Commission has jurisdiction over registered
investment companies, registered investment advisers, broker-dealers and
transfer agents and, in the event of a violation of applicable rules or
regulations by the Company or its subsidiaries, may take action which could have
a serious negative effect on the Company and its financial performance.
 
     Because a material portion of the Company's revenues are derived from the
mining and sale of gold by TGL, the Company's earnings are directly impacted by
gold production, the cost of such production, and the price of gold. TGL's gold
production is dependent upon a number of factors that could cause actual gold
production to differ materially from projections, including obtaining and
maintaining necessary equipment, accessing key supplies, and hiring and training
supervisory personnel and skilled workers. Gold production is also affected by
the time lag inherent in heap leaching technology, subject to weather conditions
and dependent on the continued political stability in the Republic of Ghana.
Gold prices have historically fluctuated significantly and are affected by
numerous factors, including expectations for inflation, the strength of the U.S.
dollar, global and regional demand, central bank gold supplies and political and
economic conditions. If, as a result of a decline in gold prices, TGL's revenues
from gold sales were to fall below cash
                                       23
<PAGE>   24
 
costs of production, and to remain below cash costs of production for any
substantial period, the Company could determine that it is not economically
feasible for TGL to continue commercial production.
 
     TGL is dependent upon a number of key supplies for its mining operations,
including electric power, cement, diesel fuel, explosives, lubricants, tires and
sodium cyanide. There can be no assurance that a disruption in the supplies to
TGL of these key materials will not occur and adversely affect the Company's
operations.
 
     The operations at TGL depend on its ability to recruit, train and retain
employees with the requisite skills to operate large-scale mining equipment.
Although TGL offers its employees an attractive compensation package,
competition for skilled labor is strong among the various mines in Ghana. There
can be no assurance that the Company's operations will not be adversely affected
by a shortage of skilled laborers or by an increase in the time required to
fully train new employees.
 
     The Company has incurred considerable expenses in connection with the
Forest-Starma timber project located in the Russian Far East. Forest-Starma has
commenced harvesting and has made shipments of timber. The commercial
feasibility of Forest-Starma is, however, dependent upon a number of factors
which are not within the control of the Company including the price of timber,
weather conditions, political stability in Russia and the strength of the
Japanese economy, the primary market for Forest-Starma's timber. While the
Company continues to believe that the project will achieve commercial
feasibility in the long term, there can be no assurance that it will do so.
 
     The Company has a significant number of operations and investments located
outside of the U.S., including the gold mining operation at TGL and the timber
and investment management operations in Russia. Foreign operations and
investments may be adversely affected by exchange controls, currency
fluctuations, taxation, political instability, ineffective regulatory oversight
and laws or policies of the particular countries in which the Company may have
operations. There is no assurance that permits, authorizations and agreements to
implement plans at the Company's projects can be obtained under conditions or
within time frames that make such plans economically feasible, that applicable
laws or the governing political authorities will not change or that such changes
will not result in the Company's having to incur material additional
expenditures.
 
                                       24
<PAGE>   25
 
                          PART II -- OTHER INFORMATION
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
 
     The 1998 Annual Meeting of Stockholders (the "Annual Meeting") was held on
May 12, 1998. At the Annual Meeting, the following persons were elected to serve
as directors until the next Annual Meeting of Stockholders and thereafter until
their successors are duly elected and qualified: Robert L. Butler, John F.
Cogan, Jr., Maurice Engleman, Alan J. Strassman, Jaskaran S. Teja, David D.
Tripple and John H. Valentine.
 
     At the Annual Meeting, the stockholders also voted to ratify the selection
of Arthur Andersen LLP as the Company's independent accountants for the 1998
fiscal year.
 
<TABLE>
<CAPTION>
               ELECTION OF DIRECTORS:                    FOR       WITHHELD
               ----------------------                    ---       --------
<S>                                                   <C>          <C>
Robert L. Butler....................................  21,546,422   160,285
John F. Cogan, Jr...................................  21,461,086   245,621
Maurice Engleman....................................  21,544,206   162,501
Alan J. Strassman...................................  21,525,372   181,335
Jaskaran S. Teja....................................  21,540,333   166,374
David D. Tripple....................................  21,544,050   162,257
John H. Valentine...................................  21,547,092   159,615
</TABLE>
 
<TABLE>
<CAPTION>
                                                                      BROKER
                                        FOR      AGAINST   ABSTAIN   NON-VOTES
                                        ---      -------   -------   ---------
<S>                                  <C>         <C>       <C>       <C>
Ratification of Arthur Andersen LLP
  as Independent Accountants for
  the 1998 Fiscal Year.............  21,562,983  121,087   22,637        0
</TABLE>
 
ITEM 5.  OTHER INFORMATION
 
  Stockholder Proposals for 1999 Annual Meeting
 
     As set forth in the Company's Proxy Statement for its 1998 Annual Meeting
of Stockholders, stockholder proposals submitted pursuant to Rule 14a-8 under
the Securities Exchange Act of 1934 for inclusion in the Company's proxy
materials for its 1999 Annual Meeting of Stockholders (the "1999 Annual
Meeting") must be received by the Chief Financial Officer of the Company at the
principal offices of the Company no later than December 11, 1998.
 
     In addition, the Company's by-laws require that the Company be given
advance notice of stockholder nominations for election to the Company's Board of
Directors and of other matters which stockholders wish to present for action at
an annual meeting of stockholders (other than matters included in the Company's
proxy statement in accordance with Rule 14a-8). The required notice must be made
in writing and delivered or mailed by first class United States mail, postage
prepaid, to the Secretary of the Company at the principal offices of the
Company, and received not less than 60 days nor more than 90 days prior to the
1999 Annual Meeting; provided, however, that if less than 70 days' notice or
prior public disclosure of the date of the meeting is given to stockholders,
such nomination shall have been mailed or delivered to the Secretary not later
than the close of business on the 10th day following the date on which the
notice of the meeting was mailed or such public disclosure was made, whichever
occurs first. The 1999 Annual Meeting is currently expected to be held on May
11, 1999. Assuming that this date does not change, in order to comply with the
time period set forth in the Company's by-laws, appropriate notice would need to
be provided no earlier than February 10, 1999 and no later than March 12, 1999.
 
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
 
     (a) Exhibits
 
        The Exhibits filed with this Quarterly Report on Form 10-Q are listed on
        the "Index to Exhibits" below, and incorporated herein by reference.
 
     (b) Reports filed on Form 8-K. None.
 
                                       25
<PAGE>   26
 
                                   SIGNATURES
 
     It is the opinion of management that the financial information contained in
this report reflects all adjustments necessary to a fair statement of results
for the period report, but such results are not necessarily indicative of
results to be expected for the year due to the effect that stock market
fluctuations may have on assets under management. All accounting policies have
been applied consistently with those of prior periods. Such financial
information is subject to year-end adjustments and annual audit by independent
public accountants.
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
Dated: August 14, 1998
 
                                            THE PIONEER GROUP, INC.
 
                                            /s/     WILLIAM H. KEOUGH
 
                                            ------------------------------------
                                               WILLIAM H. KEOUGH, SENIOR VICE
                                                         PRESIDENT,
                                                CHIEF FINANCIAL OFFICER AND
                                                         TREASURER
 
                                       26
<PAGE>   27
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
 EXHIBIT NUMBER                            DESCRIPTION
 --------------    ------------------------------------------------------------
<C>                <S>
    11             Computation of earnings per share.
  27.98            Financial Data Schedule
  27.97            Financial Data Schedule
</TABLE>
 
                                       27